The quant houses

A few funds have turned mathematics into a money-making machine. Their names circulate like legends.

The most famous is called Medallion. It belongs to Renaissance Technologies, a firm founded by Jim Simons.

Simons was not a financier. He was a top mathematician, a former codebreaker, who had headed a university mathematics department.

He hired mathematicians, physicists, speech recognition specialists. Almost nobody came from Wall Street.

According to the journalist Gregory Zuckerman, Medallion returned about sixty-six per cent a year before fees, from nineteen eighty-eight to two thousand eighteen.

The fees are enormous, up to five per cent a year and forty-four per cent of gains. After them, about thirty-nine per cent a year remains.

At that pace, one thousand euros become nearly twenty-seven thousand in ten years. Nobody has done better over such a long period.

But you cannot get in. Since the mid two thousands, Medallion has been reserved for people who work at the firm.

Why close such a machine? The reason given: its signals cannot take large sums. The more money you put in, the more the edge melts.

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Renaissance also runs funds open to outside clients. Their results are far more ordinary.

Other houses follow the same path. D. E. Shaw, founded in nineteen eighty-eight by a computer scientist, David Shaw.

A young employee worked there before leaving to found an online bookshop. His name was Jeff Bezos.

Two Sigma, created in two thousand one, presents itself as a technology company as much as a finance one.

What they share: research before markets. Researchers, data, tests. And only then, orders.

Finally, Citadel. Founded in nineteen ninety by Ken Griffin, who had started investing from his student dorm room.

Alongside its fund, Citadel Securities has become one of the biggest market makers in the world.

A market maker constantly offers a buying price and a selling price. It earns the small gap between the two, millions of times.

When an American individual places an order, there is a good chance it is executed by Citadel, or one of its few rivals.

These giants share a secret: a small edge, applied on a huge scale, with iron discipline.

For a saver, the lesson is not to copy them. It is knowing who is often on the other side of the screen.

Against these machines, playing fast and often is a race lost in advance. Investing slowly is playing a different game.